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China's petrochemical futures markets rise on capital inflows

(Platts)
Updated: 2016-11-14 10:32
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    Capital flowing into China's petrochemical markets this week has sent futures for purified terephthalic acid, monoethylene glycol, polypropylene and polyethylene surging 4.8-8.4% from the week before.

    The rise was variously attributed by market sources to the US presidential election, domestic property investment curbs and investment funds moving money to boost their returns in a year-end rally.

    January PTA futures on the Zhengzhou Commodities Exchange were up 8.38% or Yuan 400/mt ($58.7/mt) from last Friday at Yuan 5,172/mt at 11:41 am Singapore time (0341 GMT).

    "The government is curbing speculation in property, so money went to commodities," a Chinese PTA producer said.

    China's government introduced tightening measures in the third quarter as property sales in the country touched a recent high in September, Moody's Investors Service reported in late October.

    However a trader said the rise was "basically just a flow of capital; PTA futures have been stagnant for some time at Yuan 4,600-4,800/mt, while others like methanol futures and stocks had moved up, so trading funds just decided to put more money into the PTA contract."

    "It is just pure money flow, I do not see any fundamental drivers," the trader added.

    January MEG futures have been bullish for the past few weeks. January MEG futures rose to Yuan 6,330/mt in mid-morning trade Friday from Yuan 5,900/mt at Monday's open, up a sharp Yuan 430/mt.

    The bull run in Yuan-denominated MEG futures has driven prompt physical MEG spot prices, both Yuan denominated and US dollar, sharply higher this week.

    MEG prices rose 6.73% or $47/mt from last Friday's close to $745/mt CFR China Thursday, and domestically rose Yuan 490/mt over the same period to Yuan 6,340/mt.

    "The bull run in MEG futures is driven by a mix of year-end speculation to create a rally and hence drive profits higher for traders, and also due to impetus provided by the anticipation that the launch of MEG futures trading on the Dalian Commodity Exchange would lead to wider participation and increased liquidity for MEG futures in 2017," one industry source said.

    Actively traded January LLDPE futures contract on the Dalian Commodity Exchange surged Yuan 320/mt week on week to Yuan 10,190/mt ex-warehouse at Wednesday's close.

    SPECULATIVE TRADING

    A source in China attributed the sharp rise partly to speculative trading in commodities generally.

    The Chinese government's recent curbs on speculation in Tier 2 city properties have directed money to commodities, as has a construction slowdown in the country, the source said.

    Another source said many traders had taken positions earlier on commodities and had an incentive to prop up prices in order to make their margins.

    The actively traded January contract for polypropylene on the DCE closed at Yuan 8,909/mt Thursday, surging 4.8% or Yuan 409/mt 4.8% from a week earlier, according to DCE data.

    A source in China said the futures market was very strong recently due to speculation, with investors parking cash in commodities instead of real estate.

 

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